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An agreement is considered to be a ‘lay-by’ if the consumer:
- pays for the products in at least three instalments (when the agreement is not stated to be a ‘lay-by’ agreement) or in two instalments (when the agreement is called a ‘lay-by’ agreement), and
- does not receive the products until the full price has been paid.
Any deposit paid by the consumer is an instalment.
Lay-by agreements that are standard form contracts may be covered by unfair contract terms provisions in Part 2-3 of the Australian Consumer Law.
Lay-by agreements must be in writing and be transparent (expressed in plain language, legible and clearly presented). The agreement must specify all terms and conditions, including any termination charge.
A copy of the lay-by agreement must be given to the consumer.
The supplier may impose a termination charge if a consumer decides to cancel a lay-by agreement (unless the supplier has breached the lay-by agreement).
There is no set amount or percentage for a termination fee, but it must not be more than the supplier’s ‘reasonable costs’ in relation to the agreement. What is ‘reasonable’ will depend on the circumstances, and suppliers should be prepared to justify their claims for reasonable costs.
The supplier can charge a cancellation fee (also known as a termination charge) if:
- the store has kept their part of the lay-by agreement, and
- the consumer has simply changed their mind and decided they no longer want the lay-by.
The supplier cannot charge a cancellation fee if:
- the reason the lay-by was cancelled was not the consumer’s fault and the store has not kept their part of the lay-by agreement. For example, the product was not delivered by the time stated in the lay-by agreement; or
- it was the store that cancelled the lay-by.
A cancellation fee needs to be stated clearly and legibly in the lay-by agreement.
Termination by the consumer
Consumers can cancel a lay-by at any time before they collect the item.
The supplier must refund all amounts (including ‘deposits’) paid by the consumer under the agreement, except for the termination charge.
If the consumer’s lay-by payments do not cover the termination charge, the supplier can recover the outstanding amount as a debt. However, the supplier is not entitled to damages or any other remedy.
Termination by the supplier
A supplier must not terminate a lay-by agreement unless:
- the consumer has breached a term of the agreement (such as missing a scheduled payment), or
- the supplier is no longer engaged in trade or commerce, or
- the products are no longer available due to circumstances outside the supplier’s control (not because the supplier decided to withdraw the products from sale).
Lay-by price has changed
If the price of the item changes, for example, if the item is now on sale, the consumer still have to pay the price shown in the lay-by agreement, unless the store agrees to sell the product at the new price.
Consumers can choose to cancel the lay-by, but may have to pay a cancellation fee – check the terms and conditions in the lay-by agreement.
Late payment of lay-by
If consumers do not pay the outstanding amount, the store may cancel the lay-by.
If this happens, they must refund any money the consumer has already paid (minus any cancellation fee).
If a lay-by purchase comes with a warranty for a set period (for example, 12 months or three years), the warranty period begins when the consumer finalises the lay-by contract and takes ownership of the product.